Spy Away

When Jay Bloom leaves a trade show, his pockets are stuffed with
his competitors' brochures. When he reads trade journals, he
scans the pages for new products, promotions and other changes at
rival firms. A clipping service sends more articles containing
selected key words. If the customers who call his service center
mention competitors, he asks for details. Partners and investors
provide gossip about rivals. Employees patronize competitors to
investigate others' offers and service from a customer's
angle.

Bloom is no spy, merely a practitioner of competitive
intelligence, or CI. Keeping tabs on the competitive environment
helps the 32-year-old founder of Pet Assure Inc., a provider of
prepaid pet health plans in Dover, New Jersey, with everything from
marketing to acquisitions, explains Bloom.

"We want to know what our competitors are doing, what their
products are like and what their offers are," says Bloom. That
sounds sensible, but annual surveys by The Futures Group, a
Hartford, Connecticut, CI consulting firm, find that only about 60
percent of respondents have organized CI operations, and those are
mostly large companies.

Small companies have a tendency to ignore competitive
intelligence, says John McGonagle, managing partner of the Helicon
Group, a CI consulting firm in Blandon, Pennsylvania. Entrepreneurs
are often strapped for time, of course, but arrogance also plays a
role. "Entrepreneurs tend to think they know all about their
competitive environment," McGonagle says. "They think
they're on top of things, but they aren't."

If you think you're on top of things, you may be--or you may
not be. To help you make the call, Entrepreneur examined Pet
Assure's CI activities and added McGonagle's expert
commentary for a case study on what it really means to know
who your competition is. The results reveal what one successful
entrepreneur does right when it comes to competitive intelligence,
how he could do better, and what other entrepreneurs can learn from
his experiences.

Mark Henricks is Entrepreneur's "Cutting Edge"
columnist.

Seek And You Shall Find

Bloom had his first exposure to the ways of competitive
intelligence when he worked in risk management at a large New York
City bank. There, he gained practice studying big financial
institutions, primarily through monitoring the information in
public filings. His motivation for becoming an entrepreneur,
however, came from a much more personal encounter with competitive
intelligence.

"When I was at the bank, I had a golden retriever named
Lucky who, unfortunately, did not live up to his name," says
Bloom. "He had a condition called hip dysplasia and needed
surgery that cost about $3,000."

Bloom had a health-insurance policy on Lucky, but he discovered
it excluded the treatment his pet actually needed, plus many more.
When he looked for a better deal, something like the prepaid
membership plans humans use for dental care, he found nothing for
pets.

Further investigation revealed most pet-insurance policies
carried limitations similar to those that had left him so
dissatisfied. After confirming the niche was underserved, Bloom
left his job at the bank in 1996 and started Pet Assure. One of the
most important assets he brought with him was his appreciation of
competitive intelligence.

As a result, Pet Assure has unusually comprehensive
intelligence. At 15 to 18 trade shows per year, Bloom and his
employees drop by rivals' booths to ask questions and gather
marketing material. "You find your competitors there, and
it's easy to gather information," he explains. In addition
to pet-industry conventions, Bloom attends shows concerning
employee benefits because selling memberships to companies for use
in their benefits packages is an important distribution
channel.

Bloom also subscribes to numerous periodicals covering the pet
and veterinary industries. Although Pet Assure rarely markets
directly to consumers, preferring to sell to intermediaries such as
insurance companies, PPO networks and other businesses, Bloom reads
the likes of Cat Fancy and Dog Fancy to see articles
about, and advertisements for, rivals who do. Veterinary
Economics and similar publications illuminate opponents'
approaches to the vets who care for Pet Assure's members'
animals.

And it doesn't stop there. Bloom employs a clipping service
to read a wide variety of general and special-interest
publications. When a key word turns up, the service sends him a
copy of the article. "Clipping services are great," he
says. "We use generic key words as well as our
competitors' names.

"Customer feedback is also important. We get a lot of calls
complaining about competitors' products." Employees
answering the phone at Pet Assure's call center are instructed
to take notes when customers complain, compliment or make any
comment about the competition. The information is forwarded
directly to Bloom, who distributes it to sales, marketing and other
departments.

Some customers of competitive plans come from an unlikely
source: the ranks of Bloom's employees. "A great way to
find out what's going on with competitors is to have staff
enroll in their programs," he explains. Competitive shopping,
as the practice is known, offers deep insight about rivals'
offerings, marketing, pricing and service.

One Pet Assure employee who signed with a competitor found the
company was automatically enrolling anyone who called a phone
number and tacking the fee onto the customer's monthly phone
bill. Learning about the objectionable practice alerted Bloom to an
opportunity for stressing his own more ethical billing methods to
prospects in the competitor's market.

Pet Assure's financial backers are also naturally interested
in competitive trends, and they provide another backstop. Not long
ago, an investor noticed a rival's ads suddenly increasing in
number and frequency and tipped Bloom off to the potential threat.
Bloom found the competitor had formed a strategic partnership to
get the cash for its invigorated marketing effort. Bloom used the
information to form his own partnership with a rival of his
competitor's new ally. "We have over 100 investors,"
he says, "and they call me every time they see anything on pet
insurance."

Perhaps Pet Assure's most valuable CI resource consists of
the 2,000 veterinarians enlisted to care for members' pets.
When rival firms contact a Pet Assure-affiliated vet, the vet
usually calls Bloom to discuss the offer. Sometimes Bloom even gets
to peek at rivals' contracts. "We get a ton of information
from our provider network," Bloom says. "There's no
other way to find out about the small, regional players."

Bloom uses his CI findings in a variety of ways. When a customer
call alerted him to the fact that a competitor was the target of a
consumer lawsuit in a nearby state, Bloom moved quickly to run down
details. "That kind of information about a competitor has a
lot of value, especially when you're bidding against
them," Bloom says.

A major concern is trying to find out whether a pet insurer is
moving into Bloom's favorite markets: employee benefit
programs, retail pet stores and banks, which offer memberships as
inducements to credit-card customers. "We want to know what
our competitors are doing, what their products are like and what
their offers are," Bloom says.

Lately, Pet Assure has looked into acquiring some smaller
competitors, and CI plays a key role by letting Bloom evaluate
acquisition candidates without tipping his hand. "The
monitoring lets us form opinions on who's worth pursuing a
relationship with and who's not going anywhere," he
says.

The Expert's Analysis

Pet Assure goes further than most small companies in competitive
intelligence, says McGonagle. That probably comes as no surprise to
hard-working entrepreneurs out there who can barely find time to
run their own businesses, let alone monitor others. But Bloom's
personal exposure to competitive intelligence in a corporate
environment led him to put CI high on his entrepreneurial to-do
list. "The entrepreneur's involvement is the biggest
obstacle in small businesses," says McGonagle. "But,
obviously, [Bloom] didn't just buy into this; he was the
driver."

McGonagle lauds the way Bloom personally oversees collection and
dissemination of intelligence throughout the organization.
"That's the model for small business," says
McGonagle. "He's using it the same as information about
profits or regulatory issues."

Another key is managing CI to get the most return for your
investment. "One thing that discourages small business from
getting involved in CI is that they have so few people, and
they're all busy," McGonagle says. Bloom's experience
shows you can mount a part-time CI effort that's effective and
efficient.

While large companies may have entire departments devoted to
competitive monitoring, entrepreneurs need not assign even one
full-time person to the job. Simply informing customer-service
representatives about your interest in competitive feedback can
produce loads of valuable information, McGonagle says. "If no
one asks them about it, they don't tell you about it," he
adds.

Bloom's competitive shopping gets high marks from the
expert. "It's something that surprisingly few people do:
become a customer of the competitor," McGonagle says.
"People don't realize how important it is to get on
[competitors'] mailing lists and get catalogs." You can
learn all kind of things, including, if you pay attention to what
else you start getting in the mail, whether competitors are selling
the names on their customer lists to other marketers. You can then
gain an advantage by crafting a customer-privacy policy that
promises not to sell names to list brokers.

Using CI to scope out potential acquisitions, as Pet Assure is
doing, provides an unusually high return on investment, McGonagle
adds. Quietly monitoring buyout candidates is far preferable to
making direct information requests. Even preliminary formal
negotiations require hiring expensive lawyers and accountants to
audit the financials. Worse, before revealing anything, firms may
ask you to promise not to enter their market for months or years.
"That's a big price to pay if you decide you don't
want to dance," notes McGonagle. "If you do it yourself
with CI, you may not get all the information you need, but you
don't have the restrictions."

Room For Improvement

Even Bloom can improve in some areas, McGonagle contends. The
expert likes to see as much attention paid to protecting your own
information as to learning about others. Requiring customers to
keep materials confidential helps, he says, but you should take it
for granted that if you can get your competitors' materials,
they can get yours. "Never assume the competition isn't as
smart as you are," he warns.

Verifying information is another area Bloom may need to
emphasize. For instance, a customer could be telling you about a
competitor's offer in hopes you'll try to beat it.
"They give you information for a reason, and you have to
understand that," McGonagle says. "Especially if you
don't have documents, make sure you check on it."

Along those lines, Bloom needs to verify papers such as provider
contracts aren't being obtained improperly. "Make sure the
documents are not marked confidential and for the use of the
recipient only," advises McGonagle.

McGonagle is somewhat concerned that it took a customer to alert
Bloom to a lawsuit against one of his competitors. Careful
monitoring of regulatory actions and reports, especially in a
highly regulated area like insurance, might well have revealed the
issue sooner, he says. Timely awareness of a lawsuit is crucial,
McGonagle explains. There may be limited opportunity to see court
documents, many of which are full of valuable information, before a
competitor arranges to have records sealed from public view.

Entrepreneurs in most industries can get surprising amounts of
information from the government, adds McGonagle. Tax assessments
might reveal the quantity and type of machinery behind a
rival's factory walls. Bids on government contracts and
applications for environmental permits might do the same.

One last key to operating an effective CI program is to involve
employees as much as possible. McGonagle likes to see active
incentives for workers to take part. This can be as simple as
letters of praise in their personnel files. "People die for
that kind of stuff," he says, "because it can mean a
promotion."

For entrepreneurs themselves, competitive intelligence can mean
the difference between teaming up with the right partner and
getting trampled by an unseen opponent. Bloom, whose company has
gone from start-up to a 22-employee firm in three years, is a
believer. "You're not in a position to compete without
competitive intelligence," he says. "It's like
running a race without looking at the other runners."

Next Step

The Internet Age of Competitive Intelligence(Quorum
Books) by John J. McGonagle and Carolyn M. Vella discusses the
impact of the Internet on the acquisition and use of information
about business opponents.